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International Trade PDF
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MARKETING
DECISION
EXPORT
PROMOTION
EXPORTS
PAYMENTS
PROCEDURE
&
DOCUMENTS
INTERNATIONAL TRADE
UNIT ONE:
Scope of International Marketing International Marketing Vs Domestic
Marketing Motivation to Export Special difficulties in International
Marketing International Marketing Environment Features of
Globalization Essential Conditions Pros and Cons.
UNIT TWO:
Marketing Selection and Entry Decision Overseas Marketing Research
Competitive Intelligence Standard Clauses of Sales Contract
International Trade policies Tariffs, Subsidies and Quotas.
UNIT THREE:
Counter Trade World Commodity Markets World Trade in ServicesGATT WTO Institutional Infrastructure for Export promotion in India
EXIM Bank ECGC.
UNIT FOUR:
Procedure for execution of Export order Export of Goods Export by Air
and Sea Export Documents (Quality control and Preshipment Inspection)
Marine Insurance.
UNIT FIVE;
Terms of Payments Letter of Credit types process advantages
overview of EXIM Policy. Foreign Exchange Exchange Rate
Determination Exchange Rate System Fixed and Flexible Exchange
Advantages and Dis advantages.
REFERENCE BOOKS:
INTERNATIONAL BUSINESS ENVIRONMENT FRANCIS CHERUNILAM
INTERNATIONAL BUSINESS P. SUBBA RAO
EXPORT MARKETING RATHORE
INTERNATIONAL MARKETING MANAGEMENT RL. VARSHNEY AND
MAHESWARI.
INTERNATIONAL TRADE
UNIT ONE
DEFINITION OF INTERNATIONAL MARKETING:
Kotler defines marketing as 'human activity directed at satisfying needs and wants
through exchange process.' International marketing can be defined as "marketing carried
on across national boundaries".
International marketing has also been defined as ' the performance of business
activities that direct the flow of goods and services to consumers or users in more than in
one nation'. It is different from domestic marketing in as much as the exchange takes
place beyond the frontiers, thereby involving different markets and consumers who might
have different needs, wants and behavioral attributes.
Scope of International Marketing:
Though international marketing is in essence export marketing, it has a broader
connotation in marketing literature. It also means entry into international markets by:
Opening a branch/ subsidiary abroad for processing, packaging, assembly or even
complete manufacturing through direct investment.
Negotiating licensing/ franching arrangements whereby foreign enterprises are
granted the right to use the exporting company's know-how's, viz., patents,
processes or trademarks with or without financial investment.
Establishing joint ventures in foreign countries for manufacturing and or
marketing and
Offering consultancy services and undertaking turnkey projects broad.
Depending upon the degree of firms involvement, there may be several variations of
these arrangements.
International Marketing vs. Domestic Marketing:
There are a number of similarities and differences between international and
domestic marketing.
1. Both in domestic marketing and international marketing success depend upon
satisfying the basic requirements of consumers. This necessarily involves finding
out what the buyers want and meeting their needs accordingly.
businessmen more difficult as they are not sure as to which particular system will apply
to their transactions. In the case of domestic marketing the buyers are aware of the legal
systems in their country.
3. Cultural Differences: In domestic marketing there is only one nation, same language and
culture where as at international marketing many languages and different cultures.
4. Different Monetary Systems: Each country has its own monetary system and the exchange
value of each country's currency is different from that of the other. The exchange rates
between currencies fluctuate every day. In case of domestic marketing there is only one
currency prevailing in the country.
5. Differences in the Marketing infrastructure: The availability of the marketing facilities
available in different countries may vary widely. For example, an advertisement medium
very effective in one market may not be available or may be under developed in another
market.
6. Trade Restrictions: Trade restrictions, particularly import controls are a very important
problem which an international marketer faces.
7. Transport Cost: In International trade, transport cost is a major marketing expense where
as in domestic trade transport cost influences only to certain extent.
8. Procedures and Documentations: Each country has its own procedures and documentary
requirements and traders have to comply with these regulations if they want to export or
import goods from foreign countries.
9. Degree of Risk: There is a greater degree of risk involved in international marketing than
in domestic marketing due to
Large volume of transactions
Higher value of transaction
Longer time period
More time of transit
Longer credit period
Comparatively less knowledge
Exchange fluctuations.
10. Stability in Business Environment: In domestic marketing there is relatively stable
business environment. At international marketing multiple environments, many of which
are likely instable.
growth and capacity expansion of some firms within the domestic market in order
to achieve certain social objectives. But there may not be any such restrictions, if
the additional capacity is utilized for exports. Then the firm may be tempted to
export its products abroad.
Obtaining imported inputs:
Exchange controls.
Local taxes like sales taxes on imported goods.
Different monetary systems like Dollars in USA, Sterling in UK, YEN in
Japan.
Different legal system regarding import and export of goods.
Differences in procedures and documentation.
Differences in market characteristics.
Lower mobility of factors of production.
Cultural dimensions of international marketing.
Economic Unions.
Trade barriers - Tariff and non tariff barriers.
Lack of export incentives to exporters.
Lack of adequate export financing especially for small scale industries.
Complications of Exporting.
Paper work is more in export business.
Competition from local exporters, competition from exporters from other
countries and competition from producers of goods in the importing
countries.
Shipping and freight problems.
Non-availability of latest information about the market conditions, etc.
Uncontrollable Factors:
There are some factors on which the company can not have any control. Such
uncontrollable factors in international marketing are described here.
SOCIAL FACTORS:
The social/cultural environment of a nation/market may profoundly influence
business in different ways and dimensions. The attitude of workers, lab our-management
relations, government-business relations, entrepreneurial nature and attitude, political
philosophies and systems, legal environment, business ethics, governance, government
policies etc. could have a social influence of them Management may undergo a social
transformation, for example , a number of family owned business groups in India have
ushered in professional management. The need for good corporate governance is getting
more and more recognition.
In short, the type of products to be manufactured and marketed, the marketing
strategies to be employed, the way the business should be organized and governed, the
values and norms it should adhere to, are all influenced by social structure and the culture
of a society. The tastes and preferences, purpose of consumption, method of
consumption, occasion of consumption, quantity of consumption, values associated with
consumption, etc of a product may show wide variations between cultures.
Because of cultural differences, a promotion strategy that is very effective in one
market may utterly fail in another, or may even result in social or legal reprisals.
Etiquettes differ from culture to culture. The ways of meeting and greeting people,
expression of appreciation or disapproval, methods of showing respect, ways of
conducting meetings and functions, table manners etc. vary quite widely between
cultures. So familiarity with cultural is necessary for success.
The other social factors which influences the international marketing inclusive of
Marketing infrastructure
international marketing than domestic marketing. Normally by the following ways the
international merchant will face the competitors.
The exporters have no control over these types of competition and hence they have to
compete with all the three types of competitions.
LOGISTICS:
Logistics is that part of the supply chain process that plans, implements, and
controls the efficient, effective forward and reverses flow and storage of goods, services,
and related information between the point of origin and the point of consumption in order
to meet customers' requirements. The concept of logistics play vital role in international
marketing by the ways sense.
The merchant has to seek the availability of required type of transport such
as sea, air freezer space, etc.
Cost of transportation.
Unless the exporters are in a position to meet the above requirements of transport
facilities and costs they cannot export their products to the target markets.
RISKS:
There is a greater degree of risk involved in international marketing than in
domestic marketing due to
Large volume of transactions
Higher value of transaction
Longer time period
More time of transit
Longer credit period
Comparatively less knowledge
Exchange fluctuations.
Political risks
Commercial risks
Act of nature
Act of enemies
The exporters have to face these risks in the international markets. These risks can be
covered by taking insurance policies from the ECGC and General Insurance.
CONCEPT OF GLOBALIZATION
"Globalization means the production and distribution of products and services of a
homogeneous type and quality on a world wide basis. Globalization also means
globalizing the marketing, production, investment, technology and other activities. How
do these happen? Globalization does not take place in singly instance. It takes place
gradually through and evolutionary approach.
FEATURES OF GLOBALIZATION
Buying and selling goods and services from/to any country in the world.
Product planning and development are based on market consideration of the entire
world.
Setting the mind and attitude to view the entire globe as a single market.
GOVERNMENT SUPPORT:
Although unnecessary government interference is a hindrance to globalization,
government support can encourage globalization. Government support may take the
form of policy and procedural reforms, development of common facilities like
infrastructural facilities, R and D support, financial market reforms and so on.
RESOURCES:
Resources is one of the important factors which often decides the ability of a firm to
globalize. Resourceful companies may find it easier to thrust ahead in the global market.
COMPETITIVENESS:
The competitive advantage of the company is a very important determinant of success in
global business. A firm may derive competitive advantage from any one or more of the
factors such as low costs and price, product quality product, product differentiation,
technological superiority, after sales service, marketing strength etc.
ORIENTATION:
A global orientation on the part of the business firms and suitable globalization strategies
are essential for globalization.
PROS AND CONS OF GLOBALIZATION
ADVANTAGES:
Free Flow of Capital: Globalization helps for free the flow of capital from one country to
the other. It helps the investors to get a fair interest rate or dividend and the global
companies to acquire finance at lower cost of capital. Further Globalization increases
capital flows from surplus countries to the needy countries, which in turn increases the
global investment.
Free flow of Technology: Globalization helps for the flow of technology from advanced
countries to the developing countries. It helps the developing countries to implement
new technology.
Increase in Industrialization: Free flow of capital along with the technology enables the
developing countries to boost-up industrialization in their countries.
physical distance among the countries and enables people of different countries to acquire
the culture of other countries. The cultural exchange, in turn makes the people to demand
for a variety of products which are being consumed in other countries. For example,
demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian
styled garments in USA and Europe.
Increase in Employment and Income: Globalization results in shift of manufacturing
facilities to the low wage developing countries. As such, it reduces job opportunities in
advanced countries and alternatively creates job opportunities in developing countries.
Higher Standards of Living: Further, globalization reduces prices and thereby enhances
consumption and living standards of people in all the countries of the world.
Balanced Human Development: Increase in industrialization on balanced lines in the
globe, improves the skills of the people of developing countries. Further, the increased
economic development of the country enables the government to provide welfare
facilities like hospitals educational institutes etc. which in turn contributes for the
balanced human development across the globe.
Increase in the Welfare and Prosperity: The balanced industrial, social and economic
development of the world nations consequent upon the globalization along with the
welfare measures provided by the governments lead to increase in the welfare of the
people and prosperity of the world countries.
DISADVANTAGES:
Globalization kills Domestic Business: The MNCs from advanced countries utilize the
opportunities created by globalization, establish manufacturing and marketing facilities in
developing countries. The domestic business of the developing countries fails to compete
with the MNCs on the technology and quality front.
Exploits Human Resources: The foreign companies which are located in developing
countries invariably violate the labor and environmental laws in order to have the cost
advantage.
workplace safety and health issues. However, it is viewed that, globalization enables the
developing countries to become rich and enforce the labor and environmental regulations.
Leads to Unemployment and Underemployment:
MNCs produce the products in their home countries or in some other foreign countries
and market in developing countries. Therefore, the domestic countrys operations are to
be reduced. This in term leads to reduction in employment opportunities particularly in
less developed countries.
Decline in demand for domestic products: Selling of high quality foreign products at low
prices by MNCs reduces the demand for the domestic products.
Decline in Income: Unemployment and decline in demand for domestic products of both
industrial agricultural goods leads to reduction in income of the people.
Widening gap between rich and poor: Globalization not only results in decline in income
but widens the gap between rich and poor. This is because, competent people, people
with innovative skills, efficiency etc., get abnormal income, while other average people
have to strive for even a minimum wage. This results in widening the gap between have
and the have-nots,
Transfer of natural resources: MNCs establish their manufacturing facilities in
developing countries exploit their natural resources and sell the products in other
countries.
While selecting initial markets for exports, the trader should consider the
following points carefully:
Select one or two markets initially so that is the activity may be within
manageable units:
Smaller less obvious markets should not be overlooked. It would be unwise to sell
in the more competitive European market, when a less competitive Arab or
African market is available;
It is advisable to spend some time and money on visiting the overseas market.
This will enable the marketer to solve many practical problems.
Enter the export business only when the marketer is sure of its profitability.
Do not enter those markets where there are a lot of import restrictions;
Collect the latest data on export surveys and commercial intelligence from India's
Commercial Representatives abroad;
Collect the address of potential customers abroad and start correspondence with
them; avoid any trade disputes; but if such disputes arise, settle them amicably.
Make certain at the start that your export business is going to be profitable.
SELECTION OF MARKET:
The company in this connection has to take the following steps so that it can
ultimately choose one or two markets of its choice:1) The company should examine export statistics of the product from its country.
The company can look into these statistics and find out where the products are
exported. The concerned export promotion council also publishes such statistics.
2) It should examine import statistics of the product in the target markets.
3) The company can also visit some Government offices, libraries, trade associations
to find out the policy, names of importers etc.
4) The company also has discussion with some successful exporters.
5) It can also have discussions with Commodity boards, ECGC, etc
6) It may also contact our Trade representative located in our Embassies and High
commissions abroad.
7) It may also contact Foreign Embassies and High Commissions located in India.
8) The company can also send some officers to the target markets to find out the
market conditions there.
9) It can take part in trade fairs and exhibitions conducted by ITPO and other
agencies.
10) It must also find out economic, social and cultural factors in the target markets.
11) It must also decide whether it should choose one market or a few markets.
After examining various details as above the exporters have to avoid a market in the
following cases:
1) If shipping costs will be far too high
2) If the investment required is more
3) Those markets where there are a lot of import restrictions;
(iv) Distance:
The transport cost and distance are intimately correlated. For low-valued items, the
incidence of higher transport cost may reduce export competitiveness quite appreciably.
The selection process of the target market will have to take this factor into account.
(v) Competition:
The nature and extent of competition is a very crucial factor to reckon with. A thorough
study will have to be made to determine how the firm's product profile compares with
that of the competitive product line. The firm will have to evaluate whether it is in a
position to match such competition onslaught.
(vi) Distribution System:
The availability of a capable agent or distributor is a very important consideration,
especially for products requiring pre-selling, such as demonstration and post-selling, such
as after- sales services. A good distributor is essential. Even if a market is otherwise
promising, if no good distributor or agent is available, the company should think twice
before deciding to enter that market, unless it is in position to set up its own office there.
The indirect way of exporting is almost equivalent to domestic sales. The firm
sells its products in its country to another party, who takes the responsibility of actual
export. This can be done by:
a) Selling to Merchant Exporter House in India and
b) Selling to visiting/resident buyers
Selling to Merchant Exporter or Export Houses in India:
There are many merchant exporters and or recognized export houses in India,
which are willing to buy goods from the Indian manufacturers and sell them abroad.
Merchant exporters or export houses sell and buy on their account and thus assume the
risks involved in exporting. A merchant exporter is free to decided what he will buy,
where he will buy and at what price. Merchant exporters are usually well financed and
maintain their branches at port towns and in important centers abroad. They usually have
a system of gathering market information and keep a close watch on market trends. This
method of exportation is useful when the company is small and, therefore, not in position
to start an export department to like after exports sales.
Selling to Visiting/Resident Buyers:
Many big foreign companies have their resident buying representatives in India
and other countries who are entrusted with the job of procurement. Some other
companies regularly send buying teams for the same purpose. The amount of business
that is conducted by such buying operations is substantial. The advantage of selling in
this way is similar to what had been mentioned for exporting through export houses.
Advantages of Indirect Exporting:
It involves little time or effort because the merchant exporter takes care of all the
difficulties involved and assumes all the sales and credit risks;
It requires less investment and the firm's capital is not tied up;
It carries less risk, and the firm does not have to spend money on market research
or on setting up branches abroad;
It makes possible the utilization of the know-how and experience of middlemen;
The manufacturing firm is free to concentrate on production.
Disadvantages of Indirect Exporting:
DIRECT EXPORTING:
In case the firm decides not to operate through any of the intermediaries described
in the earlier paragraphs, and opts for direct exporting, it will have to choose most
carefully between one and or the other kind of export sales organization to be created. If
its export plans are ambitious and the prospects of selling in a number of markets are
promising, it may make a modest start- appoint an export manager plus a clerk.
Depending upon the firm's export sales turnover, existing and potential, it may create/set
up a separate export department or even a separate export company. Direct Exporting
may also be undertaken by:
Setting up a sales branch or a subsidiary sales organization in a foreign country,
which may be a substitute for, or a supplement to the home organization;
Appointing home-based sales representatives, who would travel abroad and book
orders;
Selecting suitable distributors in a foreign country who would buy his product and
sell it there, or suitable agents in that country who would sell it on commission
basis without taking any title to it.
Advantages of Direct Exporting:
He can enjoy the full returns on exports. His profits will be more than
selling the goods through middlemen.
Direct exporting is the only choice for certain products and not alternative
to get success, especially in the following cases:
-
If middlemen decline
More risk
LICENSING:
Under this method, the manufacturer enters into an agreement with a licensee in
the foreign country and this gives him the right to use the manufacturing process, a patent
design or a trademark, technical information or some facility in return for some fee or
royalty. It is often the quickest way of entering overseas markets - sometimes the only
possible way as in centrally planned economies. It is clearly a method that involves little
expense, and avoids all distribution costs.
Advantages and Disadvantages of Licensing
Advantages
Disadvantages
Licensing mode carries low investment on Licensing agreements reduce the market
the part of the licensor.
opportunities
for
both
licensor
and
licensee.
Licensing mode carries low financial risk Both the parties have the responsibilities to
to the licensor.
Licensor can investigate the foreign market Costly and tedious litigation may crop up
between
the
for
misunderstanding
parties
despite
the
FRANCHISING:
Franchising is also a form of licensing. The franchisor can exercise more control
over the franchise compared to that in licensing. Under franchising, an independent
organization called the franchise operates the business under the name of another
company called franchisor. The franchisor provides the following services to the
franchisee:
Trade marks
Operating system
Product reputations
Continuous support systems like advertising, employee training, reservation service, and
quality assurance programme etc.
Advantages and Disadvantages of Franchising
Advantages
Disadvantages
Franchisor can enter global markets with International franchising may be more
low investment and low risks.
Franchisor
can
get
the
countrys market.
Franchisee can early start a business with Both the parties have the responsibilities to
low risk as he selects an established and maintain product quality and product
proven product and operating system.
promotion.
Franchise gets the benefit of R & D with There is a problem of leakage of trade
low cost.
secrets.
JOINT VENTURE:
A joint venture involves a capital partnership and may be arranged for
manufacturing activities, marketing activities, or both. This takes place when:
The domestic investor buys an interest in a manufacturing unit situated in
a foreign country;
Any investor of a foreign country buys an interest in a manufacturing unit
of the domestic investor already existing in that country; or
A domestic investor and an investor in a foreign country together start a
new venture in that foreign country.
FOREIGN SUBSIDIARIES:
The marketer establishes a subsidiary manufacturing unit in a foreign country. He
is its exclusive owner and controller, the monarch of all that it contains. This is the
culmination of international marketing. It is international production-cum marketing.
When a company engages in such production in a number of countries, it is called
multinational company.
SPECIAL MODES OF ENTRY:
A. Contract Manufacturing:
Some companies outsource their part of or entire production and concentrate on
marketing operations.
outsourcing.
B. Management Contracts:
The companies with low level technology and managerial expertise may seek the
assistance of a foreign company. Then the foreign company may agree to provide
technical assistance and managerial expertise. This agreement between these two
companies is called the management contract.
C. Turnkey projects:
A turnkey project is a contract under which firms agrees to fully design, construct and
equity a manufacturing/business/service facility and turn the project over to the purchaser
when it is ready for operations for a remuneration. International turnkey projects include
nuclear power plants, air ports, oil refinery, national highways, railway lines etc.
Research can help prevent the use of inappropriate market entry method.
Research can help to determine the positioning of the product, taking into account
the socio-cultural factors.
Promotional campaigns should be decided only when proper research has been
carried out regarding their acceptability in a given environment.
The research becomes inevitable when the income, fashion, habits and
preferences are changing very fast.
The needs for research also arise when the sale of the product is showing a
downward trend and the reason for the fall could not be established.
Design a questionnaire.
Prepare the sample of respondents.
Interview the respondents.
Analyse and evaluate the results.
DESK RESEARCH:
Desk research is the first phase of the marketing research. It involves collection of all
relevant information from known published and unpublished documentations available
within and outside the organization.
Inside or Internal source of information:
This information can be gathered from the following:
-
reports from its branches and agents abroad and its officers dealing
in export trade.
EXAMPLES OF SOURCES
Import statistics
Production statistics
Currency restrictions
Health restrictions
Political situation
Domestic consumption
Identification of agents
Banks
Transport cost
Prices
FIELD RESEARCH:
An analysis of data collected from desk research would reveal the gaps in
information that still remain.
formations are not available from secondary (desk) sources. Going directly to the market
may cover the gaps in information. There are two specific important steps before field
research can be undertaken viz., design and testing of a questionnaire and preparation of a
sample of respondents. In order to secure the best possible return on the limited time that
can be spent on export market research.
Field research can be conducted through personal interviews, telephone
interviews and stores checks. Of the three methods, personal interview is the most
dependable if reliable data are to be required. Unfortunately, however, in many
developing countries, the personal interview presents special problems for two main
reasons. First the recruitment of interview is difficult and ins some cultures it is
impossible to recruit female interviewers at all.
Techniques of Field Research: Interview methods, Questionnaire and Observation
method
(Refer Research methodology book for further details for the above said techniques)
COMPETITIVE INTELLIGENCE:
Marketing:
What marketing channels they have?
Their pricing strategy.
Their promotional strategies.
What's their market share?
How was it changed over the period of time?
What are their advertising media? How much cost is incurred regarding that?
Supplying the market:
How do the competitive products get to the market?
Who are the importers and how do they operate?
What credit, pricing, and other terms are extended by foreign suppliers?
Total value.
Currency
Packing specifications
Mode of transport
Insurance.
Inspection.
Documentations.
Mode of payment.
Passing of risk.
Passing of property.
Settlement of disputes.
Jurisdiction.
TARIFFS
Tariff refers to the tax imposed on imports. It is a duty or tax imposed on internationally
traded commodities when they cross the national borders. The objectives of Tariffs are
To protect domestic industries from foreign competition
To guard against dumping
To promote indigenous research and development
To conserve foreign exchange resources of the country
To make the balance of payments position more favorable and
To discriminate against certain countries.
IMPACT OF TARIFFS
Tariff affect on economy in different ways. An import duty generally has the following
effects:
Protective effect:
An import duty is likely to increase the price of imported goods. This increase in the
price of imports is likely to reduce imports and increase the demand for domestic goods.
Import duties may also enable domestic industries to absorb higher production costs.
Thus, as a result of the protection by tariffs, domestic industries are able to expand their
output.
Consumption Effect:
The increase in prices resulting from the levy of import duty usually reduces the
consumption capacity of the people.
Redistribution Effect;
If the import duty causes an increase in the price of domestically produced goods, it
amounts to redistribution of income between the consumers and producers in favor of the
producers. Further a part of the consumer income is transferred to the exchequer by
means of the tariff.
Revenue Effect:
As mentioned above, a tariff means increased revenue for the government.
Income and Employment Effect;
The tariff may cause a switch over from spending on foreign goods to spending on
domestic goods. This higher spending within the country ay cause an expansion in
domestic income and employment.
Competitive Effect:
The competitive effect on the tariff is, in fact, an anti-competitive effect in the sense that
the protection of domestic industries against foreign competition may enable the
domestic industries to obtain monopoly power with all its associated evils.
Terms of trade effect:
In a bid to maintain the precious level of imports to the tariff imposing country, if the
exporter reduces his prices, the tariff importing country is able to get imports to a lower
price.
QUOTAS
Quota is direct restriction on the quantity of goods which are imported into a country.
These restrictions are imposed by issuing import licenses to certain firms and individuals
to import certain quantity of the goods. India had quotas of imports of various goods like
cars, motor cycles, milk etc. up to 31st march 2001. Import quotas provide the protection
to the domestic firms from the foreign countries.
IMPACT OF QUOTAS
Balance of Payment Effect:
As quotas enable a country to restrict the aggregate imports within specified limits,
quotas are helpful in improving its balance of payments position.
Price Effect:
As quotas limit the total supply, they may cause an increase in domestic prices.
Consumption Effect:
If quotas lead to an increase in prices, people may be constrained to reduce their
consumption of the commodity subject to quotas or some other commodities.
Protective Effect:
TARIFFS Vs QUOTAS
The differences between tariffs and quotas will be clear by the following way of
comparison:
Let us first examine the superiority of quotas to tariffs:
As a protective measure, a quota is more effective than the tariff. A tariff seeks to
discourage imports by raising the price of imported articles. It however fails to
restrict imports when the demand for imports is price inelastic.
When compared to tariffs, quotas are much precise and their effects much more
certain.
It has been argued that quotas tend to be more flexible; more easily imposed and
more easily removed instruments of commercial policy than tariffs. Tariffs are
often regarded as relatively permanent measures and rapidly build powerful
vested interests, which make them all the more difficult to remove. Quotas have
many characteristics of a more temporary measure, are designed to deal only with
a current problem, and removable as soon as circumstances warrant.
Quotas, however, suffer from certain effects. Tariffs in some respects are superior to
quotas.
The effects of quotas are more rigorous and arbitrary and they tend to distort
international trade much more than the tariffs. That is why GATT condemns
quotas and prefers tariffs to quotas for controlling imports.
Quotas tend to restrict competition much more than tariffs by helping importers
and exporters to acquire monopoly power. If import quotas are allocated only to a
few importers, they may enable them to amass fortunes by exploiting the market.
Similarly, quotas tend to promote the concentration of economic power among
foreign exporters.
SUBSIDIES
In order to encourage domestic production or to protect the domestic producer from the
foreign competitors, government pays to a domestic producers reducing operations cost.
Such payments are called subsidies. Subsidies are in different forms. They are: Cash
grants, loans and advances at low rate of interest, tax holidays, government procurement
of out put at a higher rate, equity participation and supply of inputs at lower prices.
sluggish or uneven.
Evidence Accounts: Under evidence accounts, the company sells its products or services
to a local foreign trade organization and purchases goods and services of its requirements
form another local foreign trade organization of the equal amount. These kinds of
transactions are set to occur over a specified period, generally one year. Such accounts
are monitored by the country's bank of foreign trade that deals in foreign exchange and
where the company maintains its accounts.
REASONS FOR THE GROWTH OF COUNTER TRADE
The reasons to engage in counter trade include those basic to business; t o enter
new markets, sell products and gain an edge over competition.
Counter trade is
European countries to enter into counter trade arrangements. The developing countries,
particularly those maintaining overvalued exchange rates, have resorted to counter trade
for the reasons such as balance of payments difficulties, creation of overcapacity etc.
Some other reasons for the growth of counter trade are as follows:
- The desire to conceal from the domestic public the fact that the sale is being
made below its costs. This motive for counter trade is important for many developing
countries and also for a number of communist countries.
- A counter trade transaction may provide some slight additional certainty in an
uncertain world.
- A counter trade transaction permits concealed discounting in a period of weak
markets. In other worlds counter trade permits price discrimination among customers.
-Developing countries will have confident to export their products to other
countries.
history in the use of buy-back arrangements. This technique is being increasingly applied
for importing technology, especially for export-oriented projects.
governments which together account for 90 per cent of the world merchandise trade
subscribe it to. Its basic aim is to liberalize trade and for the last 45 years it has been
concerned with negotiating the reduction of trade barriers and with international trade
relations. The rapid and uninterrupted growth in the volume of international trade till
1992 provides a good testimony for the success of the GATT.
Basic Principles of GATT:
1. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. All contracting parties are bound to grant to each other treatment
as favourable as they would to any country (most favoured nation) in the
application and administration of import and export duties and charges.
Expectations to this basic rule are allowed only in the case of regional trading
arrangements and the developing countries.
2. Protection only through tariff:
industries only through customs tariffs and not through other commercial
measures. The aim of this rule is to make the extent of protection clear and to
Make competition possible.
developing countries where the demand for imports by development may require
them to maintain quantitative restrictions in order to prevent an excessive drain on
their foreign exchange resources.
3. A Stable basis of trade: The binding of the tariff levels negotiated among the
contracting countries provides a stable predictable basis for trade. Binding of
tariffs means that these cannot be increased unilaterally. Although provision is
made for the renegotiation of bound tariffs, a return tariffs is discouraged by the
requirement that any increase be compensated for.
4. Consultation:
consult one another on trade matters and problems. They can call on GATT for a
fair settlement of cases in which they feel that their rights under the GATT are
being withheld or compromised by other members.
The agreement consists of four parts:
Part I: Main obligations of the contracting parties;
Part II: A code of fait trade practices to guide members in their commercial policies;
Part III: Conditions for membership and withdrawal; and
Part IV: Expansion of trade of developing countries through special concessions.
Trade Negotiations under GATT:
Eight major trade negotiations took place under the GATT auspice as follows:
1. The first round in 1947 (Geneva) saw creation of the GATT.
2. The second round in 1949 (Annecy, France) involved negotiation with nations
that desired GATT membership.
negotiations.
3. The third round in 1951 (Torquay, England) continued accession and tariff
reduction negotiations.
4. The fourth round in 1956 (Geneva) proceeded along the same track as earlier
rounds.
5. The fifth round in 1960-61 (Geneva, Dillon Round) involved further revision
of the GATT and the addition of more countries.
6. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier
product by product approach with across the board tariff reductions.
7. The seventh round in 1973-79 (Geneva, Tokya Round) centred on the
negotiation of additional tariff cuts and developed a series of agreements
governing the use of non-tariff measures.
8. The eight round (Uruguary Round ) started in 1986 and was concluded in
April 1994.
As a result of these negotiations, the tariff rates for thousands of items entering into world
trade were reduced or bound against increase. The average level of tariffs on
manufactured goods in industrial countries was bout 3 per cent now as compared to about
disappointed with Kennedy round and the Tokyo Round. However, given its provisional
nature and the limited field of action, the success of GATT in promotion and securing
liberalisation of much of world trade over 47 years was incontestable.
WEAKNESS OF GATT:
The weakness of GATT is that its benefits have mainly gone to the industrialized
countries. Under GATT, Most negotiations and tariff reductions have taken place in
respect of manufactured goods. So the trade gap for the developing countries has become
more unfavourable. A search for a new institutional arrangement, especially one which
one would tackle the problems of the global trade of developing countries, led to the
formation of united Nations Committee on Trade and Development in 1946.
membership of the WTO stood at 139. 76 Governments became members of the WTO on
its first day. The present membership accounts for more than 90 per cent of world trade.
Many more countries have requested to WTO. The WTO is based in Geneva,
Switzerland. Its essential functions are as follows.
1. To administer the trade policy mechanism.
2. To achieve greater coherence in global economic-policy making in
cooperation with World Bank and IMF.
3. To provide a forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with in the agreements.
4. To administer the understandings on Rules on Procedures governing the
settlement of disputes.
5. To introduce the idea of 'sustainable development' in relation to the optimal
use of the world resources and the need to protect and preserve the
environment in a manner consistent with the various levels of national
economic development.
6. To recognize that there is a need for positive efforts to ensure that the
developing countries, especially, the least developed countries secure a better
share of the growth of the international trade.
HOW IS THE WTO DIFFERENT FROM THE GATT?
(a) The GATT was a set of rules, a multilateral agreement with no
institutional foundation with only a small associated secretariat. The WTO is a
permanent institution with its own secretariat.
(ii) The GATT was applied on a "Provisional basis" even if, after more than 40
years, governments chose to treat it as a permanent commitment. The WTO
commitments are full and permanent.
(iii)The GATT rules applied to trade in merchandise goods. In addition to goods,
the WTO covers trade in services and trade related aspects of intellectual
property.
(iv)While GATT was multilateral instrument by the 1980s many new agreements
had been added of plurilateral, and therefore selective, nature. The agreements
which constitute the WTO
Transport
Travel
Communication
Media
Business services
Insurances
-The mobile provider and immobile user categorize the first category. In this case
the provider goes into the place of user and doing services. For example the technical
people of L & T Company in India goes to Srilanka and do the construction work.
Similarly a technician may have to go a plant abroad to rectify a problem with the plant.
- Mobile user and immosbile provider characterizes the second category. I.e. user
goes towards the provider. For example a patient who wants an open-heart surgery will
have to go to a hospital where the required facilities are available.
-The third category consists of of mobile user and mobile provider. In this case
either the provider going to the user or the user going to the provider may achieve
proximity. For example dry-docking facilities for ships.
The Government of India has set up a number of institutions whose main functions are to
help an exporter in its export efforts. It is therefore, necessary for the exporters to
acquaint themselves with these institutions and the nature of help they can render to them
so that they can initially contact them to get whatever help they could get from these
institutions in exporting their products.
1.DEPARTMENT OF COMMERCE:
2.ADVISORY BOARDS
Board of Trade : The Board of Trade is the highest advisory body under the
Department of commerce to deliberate on policy matters. It has its members as follows:
a. Presidents of FICCI, ASSOCHAM and FASSI
b. Leading industries
c. Secretaries of Commerce and industry, Finance, External Affairs and
Textiles
d. Chairman of ITPO/MD of ECGC
Export Promotion Board: under the chairmanship of cabinet Secretary.
3.AUTONOMUS BODIES:
The
commodity boards del with the entire range of problems of production, development,
marketing etc. In respect of commodities concerned, they act themselves as if they were
the Export Promotion Councils. Some of these Boards have opened their branch in
foreign countries in order to promote the consumption of the commodities under their
jurisdiction.
(III) Marine Products Export Development Authority:
The main functions of the Authority are:
1. Development of off-shore and deep- sea fishing in all its aspects and
conservation and management of off-shore and deep-sea fisheries;
2. Registration of fishing vessels, processing plants, storage premises and
exports with a view to promote a healthy development.
3. Laying down standards and specifications for marine products for the purpose
of export.
4. Rendering financial assistance.
5. Arranging for training in different aspects connected with export with special
reference to fishing, processing and marketing.
(IV) Agricultural and Processed Food Products Export Development Authority
(V) Indian Institute of Foreign Trade
The Indian Institute of Foreign Trade is functioning under the Ministry of
commerce. This is registered under the Societies Act.
(VI) India Trade Promotion Organization
(VII) National Centre for Trade Information (NCTI):
The main functions of NCTI inclusive of
-
Financial guarantees
Special policies
Under its policies intended o protect the exporters against overseas credit risks, ECGC
bears the main risks and pays the exporter 90% of his loss on account of commercial risks
and Political risks.
(IX) Export-Import Bank:
The EXIM Bank was established on January 1, 1982 for the purpose of financing,
facilitating and promoting foreign trade of India. It extends finance to exporters of
capital and manufactured goods, exporters of soft wares and consultancy services and
overseas joint ventures and construction projects abroad. The bank is the principal
financial institution in India for coordinating the work of institutions engaged in
financing export and import trade. The EXIM bank concentrates mainly on medium and
long term credit for export of goods and services on deferred payment terms.
(X) Export Inspection Councils:
Quality control and pre shipment inspection is one of the important factors in the
export marketing. In order to ensure the quality of the products exported, a legislation
entitled "Export (Quality control and Inspection) Act" was enacted by the Indian
Parliament in 1963. As per this act The Government of India has established the Export
Inspection Council. The functions of this council are generally to advise the central
government regarding the measures for the enforcement of quality control and inspection
in relation to commodities intended for export and draw up a programme therefore.
(XI) Indian Institute of Packaging
(XII) Indian Council of Arbitration
(XIII) Federation of Indian Export Organization
At present more than 500 units are in operation under the EOU scheme..
Some of the modifications done to facilitate the exporting units in the EOUs are as
follows:
An EOU unit may export all goods and services except the items prohibited by the
exim policy.
An EOU unit may import without payment of duty for all type of goods, including
capital goods required by it for its activities provided they are not prohibited items
of imports.
EOU units may import/procure from Domestic Tariff Area without payment of
duty.
Second hand capital goods may also be imported duty free without any age limit.
Only project having an investment of Rs.1 crore and above in building, plant and
machinery shall be considered for establishment under EOU scheme. Application for
setting up of units under EOU scheme may be approved by the units Approvals
Committee within 15 days.
The entire production of EOU units shall be exported subject to the following:
Rejects may be sold in the domestic tariff area on payment of duties on prior
intimation to the customs authorities.
Scrap/waste arising out of production process or in connection therewith may
be sold in the domestic tariff area on payment of duties within the overall
ceiling of 50% FOB value of exports.
By products may also be sold in the domestic tariff are subject to achievement
of positive net foreign exchange on payment of applicable duties within the
overall entitlement.
He should have enough money to offer credit to his overseas buyers and
Exporting on credit is not without risk. The overseas buyer may default; he
may go bankrupt; there may be earthquake or typhoon, a war in his country, which may
wreck his fortunes. The ECGC, a Government of India undertaking, covers the exports
against these risks. The ECGC also provides guarantees to the financing banks to enable
them to provide adequate finance to the exporters.
COVERS ISSUED BY ECGC:
The covers issued by ECGC may be divided broadly into four groups as follows:
a) Standard policies issued to exporters to protect them against the risk of not
receiving payments while trading with overseas buyers on short term credit.
b) Specific policies designed to protect Indian Firms against the risk of not receiving
payments in respect of
-
B. SPECIFIC POLICIES
Contracts for export of capital goods or projects for construction works and for
rendering services abroad are insured by ECGC on case to case basis under specific
policies. Special mention may be made of the services policy to protect Indian firms
against payment for their services policy to protect Indian firms against payment for their
services policy o protect Indian firms against payment for their services and the
construction works policy to cover all payments that fall due to a contractor under a
composite contract for execution of services as well as supply of material.
C.SMALL EXPORTER'S POLICY
The small exporter's policy is basically the Standard Policy, incorporating certain
improvements in terms of cover, in order to encourage small exporters to obtain and
operate the policy. It will be issued to exporters whose anticipated export turnover for
the next 12months does not exceed Rs.25 lakes. The premium payable for a small
exporter's policy is less than the standard policy.
D. FINANCIAL GUARANTEE TO BANKS
Timely and adequate credit facilities, at the pre-shipment as well as post-shipment
stage. Are essential for exporters to realize their full export potential. Exporters my not,
however, be able to obtain such facilities from their bankers for several reasons. The
Export Credit Guarantee Corporation, (ECGC) has designed a scheme of Guarantees to
Banks with a view to enhancing the credit worthiness of the exporter so that they would
be able to secure better and large facilities from their bankers.
To meet the varying needs of exporters. The Corporation has evolved the
following types of Guarantees;
1. Packing Credit Guarantee:
2. Export Production Finance Guarantee;
3. Post-shipment Export Credit Guarantee:
4. Export Finance Guarantee
5. Export Performance Guarantee:
6. Export Finance (Overseas lending ) Guarantee
1. PACKING CREDIT GUARANTEE
Any loan given to an exporter for the manufacture processing, purchasing or
packing of goods meant for export against a firm order or letter of credit qualifies
for packing Credit Guarantee.
The Guarantee is issued for a period of 12 months against a proposal made
for the purpose and covers all the advances that may be made by the banks during
the period to a given exporter within an approved limit.
To banks, which undertake to obtain cover for packing credit advances,
granted to all its customers on an all India basis.
2. EXPORT PRODUCTION FINANCE GUARANTEE
75% cover and 1.08% per annum for 90% cover. Premium is payable in Indian
Rupees. Claims under the guarantee will also be in Indian rupees.
EPCG Scheme
b.
c.
d.
e.
The
banks
(ii)
(iii)
Short term: The short term credit is usually for 6 months and provided by
banks.
(ii)
Medium term: Medium term loans are offered for a period beyond 6 months
and up to 5 years. These loans are also provided by commercial banks in
collaboration with EXIM Bank of India. Medium term loans are provided for
in the case of durable consumer goods and light capital goods.
(iii)
Long term: Long term loans are provided in the case of sale of capital goods
complete plants and turnkey jobs. The period of credit is usually more than 5
years.
Banks enjoy certain benefits for advancing loans to exporters,
They are as
follows.
(i)
(ii)
3. FORFAITING
Forfaiting enable an exporter to convert an overseas credit sale into a cash sale
through the process of discounting of export receivables. The bill of exchange accepted
by the importer is surrendered to the forfeiting agency which pays him in cash after
deducting a fee. The understanding is that the agency will collect the dues from the
importer on expiry of the said period.
Exemption from industrial licensing for manufacture of items reserved for SSI
sector.
Marine insurance
Packing list
Certificate of orgin
Export inspection certificate
2.A delivery note (in duplicate) is to sent to the works manager or factory
manager giving the description of goods to be exported along with the copy of the
instruction given by the importer.
3.As soon as the goods are manufactured and kept ready for shipment
the
ship loads overside, the dock charges are indicated in the shipping bill itself and
therefore, no dock challan is prepared.
7.The passed Shipping Bill including dock challan will be submitted to the Port
Commissioners.
8. In response to that the Ship's Export Clerk calls for cargo from shed or boat and
after loading prepares the Mate Receipt. A mate receipt is a receipt issued by the
commanding office of the ship when the cargo is loaded on the ship and contains
information about the name of the vessel, berth, date of shipment, description of
packages, marks and numbers, condition of the cargo at the time of receipt on board the
ship etc. The mate receipt is first handed over to the Port Trust authorities so that the
exporter may pay all the port dues. After paying all the port dues, the clearing agent
collect the mate receipt from the Port Trust Authorities.
9. The clearing and forwarding agent forwards the following documents to the
exporter: Full set of bill of lading, export promotion copy of the bill, copies of customs
invoice, original export order.
10. As soon as the exporter receives the above documents from the clearing and
forwarding agent, he completes the remaining formalities. He will present the following
documents to the negotiating bank.
11. The negotiating bank transmits duplicate copy of the GR form to the exchange
control department of the Reserve Bank of India after receipt of the export proceeds.
12.The original copy of the bank certificate along with attested copies of the
commercial invoice are returned to the exporter. The duplicate copy of the bank
certificate is forwarded to the office of the DGFT in the area.
13.Finally the exporter will get the value of the value of export consignment
against the above-mentioned documents.
should immediately confirm the order by sending this acceptance. For the confirmation of
the order, the proforma invoice is generally sent in triplicate to the buyer, and the buyer is
asked to return two copies signed by him. The exporter should again send once copy to
the importer with the exporter's signature to confirm the acceptance of the order. The
confirmation of the order usually takes the form of a contract.
EXPORT LICENSE:
These exports of some items are banned and of some items controlled by means
of licenses, though many items are permitted to be exported freely. Needless to say, the
exporter should make sure that the item sought to be exported is not one, which falls in
the banned list. If the item to be exported requires a license, it is necessary to obtain it
before finalizing the contract.
FINANCE:
If the exporter requires pre-shipment financial assistance, he should take the
necessary steps to obtain it.
PRODUCTION/PROCRUMENT OF GOODS:
Once the order is confirmed, the exporter should take necessary steps to ensure
the timely availability of the goods of the specifications required and execute the export
order promptly. If the exporter is not a manufacturer, he should contract with his
suppliers and ensure timely availability of the goods of the buyer's specifications.
SHIPPING SPACE:
As soon as the export order is confirmed, the exporter should contract the
shipping companies which have sailings for the port to which goods have be sent and
book the required shipping space. On the exporter's application or on the application of
the freight broker on the exporter's behalf, the shipping company issues sits acceptance if
the space applied for is given.
PACKING AND MARKING:
Once the goods re ready, they are marked and marked properly. If the buyer has
given instructions about packing and marking, they should be followed accordingly. If
there are no such instructions, it should be ensured that the packing and marking are of
the standards recommended or specified.
QUALITY CONTROL AND PRE-SHIPMENT INSPECTION:
the
Shipping Bill
Invoice
GR form
Quality control
Original contract
Certificate of orgin
Packing list
AR-4 Form
The customs authorities scrutinize the shipping bill and other requisite documents,
and if, prima-facie, satisfied, they pass it for export, subject to a physical examination by
the staff of the customs. The shipping bill passed by the exporter department has to
presented to the cargo supervisor or the steamship company or the shed manager, who is
the port official, for permission to bring in the cargo for export.
SEND THE SHIPPING ADVICE TO THE IMPORTER:
Once all the said above process are over and as and when goods are loaded into
cargo or ship, the exporter will inform the importer about the dispatch of goods and
departure of the ship. So that the importer get ready for his actions.
NEGOTIATION OF DOCUMENTS:
After shipping the goods, the exporter should arrange to obtain payment for the
exports by negotiation with the relevant documents through the bank.
APPLYING FOR REFUND (if any)
Then appropriate steps to be taken by way of applying to get the Duty Draw bank
from customs and other assistance, if any from Government.
ADVANTAGES:
A clearing house.
Basically, there are ten reasons which can make total distribution costs cheaper
through the use of air transport, at least for certain categories of merchandise. The
reasons are as follows.
The loss due to rough handling and pilferage is reduced to the minimum.
Breakage is neglible.
Deterioration is avoided.
Obsolence is eliminated.
EXPORT BY SEA
If the goods are sent by sea the exporter has to obtain/submit the following
documents:
Bill of Lading
Marine Insurance Policy
EXPORT DOCUMENTS
DOCUMENTS RELATED TO GOODS
INVOICE:
An invoice is the seller's bill for merchandise and contains particulars of goods,
such as the price per unit at a particular location, quantity, total value, packing
specifications, terms of sale, identification marks of the package , bill of lading number,
name and address of the importer, destination, name of the ship etc.
Some importing countries insist that the importing country's consul located in the
exporter's country should sign the invoice. Such invoices are known as consular invoice.
The main purpose of a consular invoice is to enable the authorities of the importing
country to collect accurate information about the volume, value, quality, grade, sources
etc. of its imports for purpose of assessing importing duties and also for statistical
purposes.
PACKING NOTE AND LIST:
The difference between packing note and a packing list is that the packing note
refers to the particular of the contents of an individual pack, while the packing list is a
consolidated statement of the contents of a number of cases or packs.
A packing note should include the packing note number, the date of packing, the
name and address of the exporter, the name and address of the importer, the order
number, date, shipment per bi, bill of lading number and date, marking numbers, case
number to which the note relates, and the contents of the goods is in terms of quantity and
weight. Apart from the details in the packing note, a packing list should also include item
wise details.
CERTIFICATE OF ORGIN:
A certificate of orgin, as the name indicates, is a certificate, which specifies the country
of the production of the goods. This certificate has also to be produced before clearance
of goods and assessment of duty, for the customs law of the country may require this
procedure. This certificate is a necessity where a country offers a preferential tariff to
India and the former is to ensure that only goods of Indian Orgin benefit from such
concession, A certificate of orgin may be required when goods of a particular type from
certain countries are banned. A certificate of orgin from may be obtained from chambers
of commerce, export promotion councils, and various trade associations that have been
authorized by the government.
About 1000items under produce group heads of engineering, chemicals and allied
products, food and agricultural products, jute and jute products, footwear and footwear
components, cashew, fish and fishery products etc., are under the compulsory quality
control inspection system.
3. Self-certification
CONSIGNMENT-WISE INSPECTION:
Under consignment-wise inspection, each export consignment is inspected and
tested by the recognized inspection agencies by selecting consignments on the basis of
statistical sampling plan to satisfy conformity of the products with the prescribed
standards.
IN-PROCESS QUALITY CONTROL:
This system lays emphasis on the responsibility of the manufacturers and
processors in ensuring consistent quality during each stage of production by exercising
checks on materials, components through inspecting process centers. The certifications of
inspection in favour of units approved under the scheme are issued by the Export
Inspecting Agencies. These units are under the supervision by the Export Inspection
Agencies through random spot checks.
SELF-CERTIFICATION:
Under this system the manufacturing units fulfilling the norms prescribed are
authorized by the central government to issue certificates of inspection under the Act by
themselves for their products.
The Endorser
The Endorsee
TRUST RECEIPT
If the importer is unable to take possession of the documents by making the
payment on the D/P bill following the arrival of the goods, the merchandise may be made
available to the importer by his bank under an arrangement whereby the importer signs a
trust receipt. Under this arrangement, the importer is allowed to sell the imported goods
by acting as an agent of the bank; but the retains ownership of the merchandise until the
importer has made full settlement; all sums received from the sale of goods must be
credited to the bank until such settlement is made.
LETTER OF HYPOTHECATION
A letter of hypothecation is a document signed by the customer conveying to a
banker the full ownership of goods at the port of destination in respect of which he has
made advances either by loan or by acceptance or negotiation of bills of exchange. This is
a sort of blanket document which shipping documents, demands from a customer to give
him recourse son the bills and control of the documents.
BANK CERTIFICATE OF PAYMENT
It is a certificate issued by the negotiating bank of the exporter certifying that the
bill covering particular consignments has been negotiated and that the proceeds received
in accordance with exchange control regulation in the approved manner.
MARINE INSURANCE
Insurance granted to cover loss or damage to ships or goods in transit either by
sea, air or land is called Marine Insurance. Insurance of ships is called " Hull Insurance"
while cover provided in respect of goods sis termed as cargo insurance.
The fundamental principles of marine insurance are explained below::
Insurance Interest: A person has an insurable interest in a thing if he will be benefited by
its safety or due arrival or be prejudicial by its loss, damage or detention or incur in
respect thereof.
Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all
material facts related to the risk.
All other perils: This clause does not mean all the perils that be fall a shipment, but sea
perils of the sort listed in the clause.
RISKS NOT COVERED:
Marine insurance does not cover the losses or damages expected to occur in the
following cases:
Under Normal Conditions: Because of the nature of goods themselves their
inherent vice such as breakage of fragile glasses packaged inadequately. Damage caused
by original packing is excluded no matter when the damage itself may occur.
Leakages or hook losses on goods packed in bags, solidification of palm and
coconut oil unless heated storage is provided.
Delay: This means that loss of market and loss, damage or deterioration arising
out of delay in transit are not covered.
Ordinary unavoidable Trade Losses: These losses such as shrinkage and
evaporation in bulk shipment are also not covered unless specially insured.
Wars, Strikes and Commotions: Such as these perils are commonly excluded
unless endorsed.
Dangerous Drugs Clause: The dangerous drugs clause stipulates that losses
connected with the shipment of optimum and other dangerous drugs will not be paid for
unless certain specified conditions are met.
IMPLIED CONDITIONS:
In a contract of marine insurance the following conditions are implied:
i.
that the assured will exercise utmost good faith in disclosing the actual
facts.
ii.
iii.
That the assured shall not contribute to the loss through willful fault or
negligence.
of CIF value, but this figure may be increased upon the consignee's specific request.In the
case of total loss, the agreed price is paid and in the case of partial loss, a percentage of
the total insured value is recoverable.
HOW TO MAKE A CLAIM WHEN LOSS ARISES:
Duties of Assured: Before making a claim the assured must perform certain
duties. They are:The assured must make reasonable effort to minimize the loss.
o He must immediately inform the nearest agent of his underwriter, arrange
for a survey of the damage and supply the necessary commercial
documents.
o He must make timely written claim upon the carrier for the loss or damage
within a reasonable time with the necessary documents.
The following documents are usually sent with the claim application.
Claim bill: This sets out the actual claim giving the details of the loss or
damage of the cargo.
TOTAL LOSS:
A total loss may be actual or constructive. An actual total loss may occur when
the goods are destroyed or when they arrive so damaged as to cease to be a thing of the
description insured. A constructive total loss occurs when the expenses of recovering or
repairing the goods would exceed their value after the expenditure has been incurred.
PARTIAL LOSS:
If loss is less than total it is called average in insurance term. Average may be
particular or general.
PARTIAL: There are two types of particular average losses.i.e. Total loss of a part
of the goods and goods arrived in a damaged condition. That means when a part of the
total consignment is completely lost, the insured value of such goods shall be calculated
proportionately.
The second type is that the part goods are arrived with damaged
condition.
The exporter has to receive payment for the goods he supplied to the importer. How it is
to be paid can be decided by the exporter and importer before the shipment is made.
Generally there are five methods of export payment and they are explained below:
PAYMENT IN ADVANCE:
This type of payment is most uncommon. However, if thee is heavy demand for
the goods and the goods are tailor-made for the customer, the exporter may get payment
in advance. Under this method, the exporter receives a bank or a bank advice either on
confirmation of the order or at any time before shipment. This is the most advantageous
form of payment as the exporter does not have any risk but, as we have already observed,
it is not very common.
OPEN ACCOUNT:
Under this method, the exporter sends the documents directly to the importer with
a covering letter asking for the invoice value to be remitted to him. In this case the
exporter does not draw any bill of exchange. Hence, there is no evidence of the
obligation to pay. Though this method is simple and less expensive the exporter carries
the burden of finance and it also involves real risk for the exporter. The exporter may
accept this method of payment if there is keen competition and there is a long and
established relationship between and the importer.
DOCUMENTARY BILLS:
This method of payment finances a large proportion of overseas trade. These bills
act as a bridge between the exporter's willingness to part with his money unless he is paid
for and importer's unwillingness to part with his money unless he is sure of receiving the
goods. The commercial banks that deal in foreign exchange provide a via media by
giving the necessary assurances to both the parties. Under this method of payment the
exporter agrees to submit documents to his bank along with the bill of exchange. The
documents include bill of lading, involve and a marine insurance policy.
Under this method there are two types of payments viz: Documents against
payment (D/P) and documents against Acceptance (D/A). Under D/P bills, the exporter's
bank will send the documents to its correspondent bank in the importer's country, which
will present the documents to the importer and ask him to pay the money for the goods
exported. On payment of the bill of exchange the bank will deliver the documents to the
importer so that he can take possession of the goods. In case of D/A bills, the
correspondent bank will submit the bill of exchange to be signed by the importer t
indicate his acceptance of the payment obligation. After the importer accepts the bill he
will get possession of the documents for taking delivery of the goods. On the due date of
payment, the bank will again present the bill to the importer who then makes the
payment. The money received is remitted through usual banking channels to be credited
to the exporter's account.
LETTRS OF CREDIT
A letter of credit is a document containing the guarantee of a bank to honour
drafts drawn on it by an exporter, under certain conditions and up to certain amounts,
provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for
letter of credit was given separately).
SHIPMENT ON CONSIGNMENT BASIS
In this case, the exporter makes shipment to the overseas consignee/agent, but
retains the title to the goods as also the risk attendant thereto; even though the overseas
consignee will have the physical possession of the goods. The payment for the goods
shipped is made only when the agent ultimately sells the goods to other parties. If the
agent fails to sell the goods, he may return the goods at any time without any liability and
at the seller's expense.
LETTER OF CREDIT
A letter of credit is a document containing the guarantee of a bank to honour
drafts drawn on it by an exporter, under certain conditions and up to certain amounts,
provided that the beneficiary fulfils the stipulated conditions. The letter of credit offers
advantages to both the seller and buyer. As far as the seller is concerned, a letter of credit
ensures him payment for the goods he sells, provided, of course, that he follows the
instructions. Though the buyer has to have the botheration of arranging for the letter of
credit, it may enable him to obtain more liberal discounts and a lower price from the
seller. Further, the buyer is assured that the shipment will be made by the date specified
in the letter of credit, or else the credit will expire.
PARTIES TO THE LETTER OF CREDIT:
1. The Opener: The opener is the buyer(importer). The letter of credit is opened
at the initiative and request of the buyer.
2. The Issuer: The issuer, also called the opening or issuing bank, is the bank in
the importer's country issuing the letter of credit at the request of the importer.
3. The Beneficiary: The beneficiary is the party in whose favour the credit is
issued; that is the beneficiary is the seller or exporter.
4. The confirming Bank: The confirming bank is a bank in the exporter's
country, which guarantees the credit at the request of the issuing bank. The
confirming bank undertakes all the obligations of the issuing bank as a
primary party to the credit, and even if the issuing bank fails during the
currency of the credit, the confirming bank is obliged to honour its
commitment.
5. The Notifying Bank: The notifying bank is the bank, which, at the request of
the issuing bank, notifies the beneficiary that the credit has been opened in his
favour. If the letter of credit is confirmed, the confirming the bank advises the
beneficiary accordingly.
6. The Paying Bank: The paying bank is the bank on which the draft or bill of
the exchange is to be drawn under the commercial credit. The paying bank
may be the issuing bank, the confirming bank or the notifying bank.
7. The Negotiating Bank: The negotiating bank is the bank, which pays or
accepts the drafts of the exporter. If no paying bank is specified in the credit,
the beneficiary may go the any bank and present the draft and related
documents under the credit; and if the bank agrees to negotiate the documents,
it becomes the negotiating bank.
documents. If these are in full conformity with the terms of the credit, it will accept the
documents and make the payment to the exporter. The documents are then forwarded to
the issuing bank, which reimburses the amount to the correspondent bank. The issuing
bank in turn presents the documents to the importer and debits his account for the
corresponding amount.
The steps involved, therefore, relate to three distinct activities, viz., opening of
credit, presentation of documents and the process of payment. The entire scheme of
operation can be easily visualized with reference to the Flow chart given below.
SALES CONTRACT
SELLER
OPENING ADVICE
ISSUING
BANK
DOCUMENTS
CONFIRMATI
ISSUING
BUYER
CONFIRMING
BANK
The straight lines show the flow of the credit. The dashed lines shows the flow of
the documents and the dotted lines show the process of payment.
3. Better terms of trade: The issuing banker lends the advantage of his own credit to the
importer, who is able to secure terms of trade from the foreign supplier, which is
otherwise not possible.
4. Release against trust receipt: When banks are willing to assume credit risk of the
importer, shipping documents are surrendered to him in return for his trust receipt, and
the goods released.
5. Certainty of Payment: Though the importer and the exporter are not known each other,
the letter of credit provides an absolute assurance that the bills of exchange drawn under
the letter of credit will be honoured.
6.Credit facilities: The exporter can secure loans from his bank to buy or manufacture the
goods to be supplied on the strength of the letter of credit.
7. Discount facilities: The bills of exchange drawn under the letter of credit are readily
discounted with the advising/confirming banker or any other banker, because of the firm
undertaking given by the opening banker.
COMMODITY BOARDS
The government of India has established a number of commodity boards
to be responsible for the production, development and export of some commodities like
tea, coffee, rubber, tobacco spices etc. These boards are statutory bodies.
TEA BOARD:
The Tea Boards head office is in Calcutta. The functions of these boards includes
-
In order to increase the production, the Tea Board runs various development
schemes. Some of them are 1.Tea plantation finance scheme,
New tea unit finance scheme, Small growers development scheme,Special
area development scheme etc.
The export promotion activities are undertaken to popularize Indian tea and
consumer level with special promotion programme to promote India teas in
value added for like packet tea, tea bags and instant tea.
For promotion of tea as beverage the tea board also participates in the generic
promotion programme conducted by tea council at U.K., Germany, US, and
Canada and is also member of the International Tea committee.
For improving the productivity and quality of coffee, contact programme was
launched in 4 regions covering a total number of 1018 growers.
SPICES BOARD:
The Spices Board has number of schemes of assistance to spice exporters such as
Brand promotion, Logo Promotion, grant of Spice House certificate etc. They are
explained below:
Brand Promotion: Under this scheme, interest free long-term loans up to a
maximum of 50% of the promotion cost for a period of three years are provided to the
exporters of spices in consumer packs for promoting their individual brands in overseas
markets.
Logo Promotion: In the exports of spices, quality is a key element. The spices
board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of
spices. The logo mark is awarded to exporters of spices in consumer packs who fulfill
certain stipulated conditions of hygiene/processing/packaging and product quality. Logo
is registered in six countries and would be registered in another 14 countries.
Spice House Certificate: The Board has introduced a concept of 'Spice House' and
it is awarded only to those exporters who fulfill the prescribed quality standards and have
necessary processing infrastructure for production of clean quality process. Certificates
have been awarded to many manufacturers/processors of spices.
Apart from those schemes, spices board has been supplementing activities of
Ministry of Agriculture with a number of schemes that include:
1. Production and supply of quality material and rooted cutting;
1. Replantation of old and diseased plants;
2. Providing assistance to marginal growers in non-traditional areas;
3. Organizing training programmes for growers for quality improvement and
post-harvest techniques.
The main role of EPC is to project India's image abroad as a reliable supplier of
high quality goods and services. The major functions of the EPCs are as under:
To provide commercially useful information and assistance to their members in
developing and increasing their exports.
To offer professional advice to their members in areas such as technology up
gradation, quality and design improvement, standards and specifications, product
development, innovation etc.
To organize visits of delegations of its members abroad to explore overseas
market opportunities.
To organize participation in trade fairs, exhibition and buyer seller meets in India
and abroad.
To promote interaction between the exporting community and the Government
both at the Central and State levels.
To build a statistical base and provide data on the exports and imports of the
country, exports and imports of their members, as well as other relevant
international trade data.
The Export promotion councils are non-profit organizations registered under the
Companies Act or the Societies Registration Act, as the case may be.
100% EXPORT-ORIENTED UNITS
The scheme of 100 EOU's were introduced in 1980 with a view to generating
additional production capacity for exports by providing an appropriate policy frame
work, flexibility of operations and incentives. In order to enable them to operate
successfully in the international market such units are allowed to import machinery, raw
material, components and consumable at free of custom duties. These units have to
operate under custom bond and achieve the level of value addition fixed by the Board of
Approval.
At present more than 500 units are in operation under the EOU scheme..
Some of the modifications done to facilitate the exporting units in the EOUs are as
follows:
An EOU unit may export all goods and services except the items prohibited by the
exim policy.
An EOU unit may import without payment of duty for all type of goods, including
capital goods required by it for its activities provided they are not prohibited items
of imports.
EOU units may import/procure from Domestic Tariff Area without payment of
duty.
Second hand capital goods may also be imported duty free without any age limit.
Only project having an investment of Rs.1 crore and above in building, plant and
machinery shall be considered for establishment under EOU scheme. Application for
setting up of units under EOU scheme may be approved by the units Approvals
Committee within 15 days.
The entire production of EOU units shall be exported subject to the following:
Rejects may be sold in the domestic tariff area on payment of duties on prior
intimation to the customs authorities.
Scrap/waste arising out of production process or in connection therewith may
be sold in the domestic tariff area on payment of duties within the overall
ceiling of 50% FOB value of exports.
By products may also be sold in the domestic tariff are subject to achievement
of positive net foreign exchange on payment of applicable duties within the
overall entitlement.
came into force with effect from 1 st April 2002 and shall remain in force up to 31st March
2007. The following are the salient features of the policy as amended up to 31 st March
2003.
The principles objectives of this policy are:
The units shall be eligible for funds from Market Access Imitative scheme.
Under EPCG scheme, these units will not be required to maintain average level of
exports.
The units shall be entitled to the benefit of export house status on achieving lower
total export/deemed export performance of Rs.15 crores during the preceding
three licensing years.
They are also entitled to duty free imports of specified items upto 3% of FOB
value of their exports.
7.Status Certificate:
CONCLUSION
In short, the EXIM policy since 1992 acknowledges that the trade can flourish in
a regime of substantial freedom. It also recogninses the need for reasonable stability of
the policy, by making the duration of the policy 5 years. The implication of the new
policy is that survival of a firm will depend on its competitiveness in the globalising
environment and the competitive firms will have plentiful opportunities. Indian firms will
have to gear up themselves to survive and to become successful in the emerging
borderless world.
FOREIGN EXCHANGE
The importing country pays money to the exporting country in return of goods
either in its domestic currency or the hard currency. This currency which facilitates the
payment to complete the transaction is called foreign exchange. This foreign exchange is
the money in one country for money or credit or goods or services in another country.
Foreign exchange includes foreign currency, cheques and foreign drafts.
The
components of foreign exchange market rate include: the buyers, the sellers and the
intermediaries. The market intermediaries of foreign exchange market include Exchange
banks dealing in foreign exchange, bill brokers, acceptance houses and Central Bank of
the country.
Exchange rate determination:
The transactions in the foreign exchange market, viz., buying and selling foreign
currency take at a rate which is called exchange rate. Exchange rate is the price paid in
the home currency for a unit of foreign currency. The exchange rate can be quoted in two
ways namely
One unit of foreign money to a number of units of domestic currency.
A certain number of units of foreign currency to one unit of domestic country.
For example, 1 US$ = Rs.48 or Rs. 1 = US$ 0.02
Exchange rate in a free market is determined by the demand and the supply of exchange
of a particular country. The equilibrium exchange rate is the rate at which demand for
foreign exchange and the supply of foreign exchange are equal. Equilibrium exchange
rate can be determined by two methods:
The Exchange rate between US dollars and Indian Rupees can be determined by
demand for and supply of US dollars in India or by Indians. The price of US $ is
fixed in Indian Rupees.
The exchange rate between Indian Rupees and US $ dollars can also be
determined by demand for and supply of Indian Rupees by Americans or in USA.
The price of Indian Rupee is determined in US dollars. But the prices are same in
both these methods.
Demand for Foreign Exchange: The demand for foreign exchange is determined by the
countrys
Import of goods and services
Investment in foreign countries i.e. establishment of an industry by Indians in
USA.
Other payments involved in international transactions like payments of Indian
Government to various foreign governments for settlement of their transactions.
Other types of foreign capital like giving donations etc.
Supply of Foreign Exchange: Supply of Foreign Exchange of a particular country
indicates the availability of foreign currency of a particular country to the country
concerned (i.e. India) in its foreign exchange market. The supply of foreign exchange
includes:
Countrys exports of goods and services to foreign countries.
Inflow of foreign capital
Payments made by the foreign governments to Indian governments
for settling their transactions.
Other types of inflow of foreign capital like remittances by the
Non-Resident Indians, donations received etc.
EXCHANGE RATE SYSTEM:
Fixed Exchange Rates:
Under this system, the governments used to fix the exchange rate and the central bank to
operate it by creating exchange establishment fund. The central bank of country
purchases the foreign currency when the exchange rate falls and sells the foreign
exchange when the exchange rate increases. The countries follow fixed exchange rates
due to its advantages. They are:
Fixed exchange rates ensure certainty and confidence and thereby promoters
international business.
Fixed exchange rates promote long-term investments by various across the globe.
Most of the world currency like US dollar areas and sterling pound areas prefer
fixed exchange rates.
Fixed exchange rates result in economic stabilization.
Fixed exchange rates stabiles international business and avoid foreign exchange
risks to a greater extent. As such the small but international business oriented
countries like UK and Demark prefer fixed exchange rate system.
Despite these advantages, most of the world countries at present are not in favour of this
system because of the following reasons;
Due to problems with the fixed exchange rate system, IMF permits
occasional changes in the system. The system is changed into managed
flexibility system. The managed flexibility system needs large foreign
exchange reserves to buy or sell foreign exchange in order to manage the
exchange rate. Maintenance of greater reserves aggravate the problem of
international liquidity.
Fixed
of foreign exchange is more than that of demand for the same, the exchange rate is
determined at a low rate and vice versa. Most of the countries in recent times are in
favour of flexible exchange rates due to their advantages.
This system is simple to operate. This system does not result in deficit or surplus
of foreign exchange. The exchange rate moves automatically and freely.
The adjustment of exchange rate under this system is a continuous process.
The system helps for the promotion of foreign trade.
Stability in exchange rate in the long-run is not possible even in fixed exchange
rate system. Hence, this system provides the same benefit like fixed exchange
rate system for long term investments.
This system permits the existence of free trade and convertible currencies on a
continuous basis.
This system also confers more independence on the government regarding their
domestic policies.
This system eliminates the expenditure of maintenance of official foreign
exchange reserves and operation of the fixed exchange rate system.
Disadvantages:
However this system is also not free from the disadvantages. The disadvantages of this
system include:
Market mechanism may fail to bring about an appropriate exchange rate. The
equilibrium exchange rate may fail to give correct signals to correct the balance of
payments position.
Under flexible exchange rate system, the exchange rate changes quite frequently.
These frequent changes result in exchange risks, breed uncertainty and impede
international trade and capital movements.
Despite the advantages of fixed exchange rate and the disadvantages of floating exchange
rate system, it is viewed that the flexible rate system is suitable for the globalization
process. In addition, the convert ability also helps the floating rate system and the
globalization of foreign exchange process.
in
Indias
6. What
your
opinion
reasons
for
sluggishness
in
Foreign Trade?
are
various
assistance
available
to
Indian
Exporters?
7. What are the major Exports of India?
8. Explain the advantages of Regional Economic groupings?
9. Explain the salient features of the EXIM policy of our
country
Give
suggestions
competitiveness of Indian
10.Examine
the
subsidies have
methods
could
extent
to
to
further
improve
the
Exports?
which
the
direct
Export
effective
in
encouraging
more
exports?
11.Critically
.Describe the
examine
the
Indias
export
performance
give suggestions to
improvement.
International marketing?
14."Quality
improvements
exports".Discuss
are
essential
to
boost
Indian context?
15.Explain
the
role
of
export
subsidies
in
promoting
Indian
exports.What other methods do you suggest?
16.How
does
countries
International
Trade
contribute
to
the
economy?
incentives provided by
industry sector.
Quality
improvements
exports".Discuss the
are
essential
to
boost
Indian context.
23.As a marketing manager ,how
problems of
your choice.
24.What do you mean by 'Marketing mix ,in the context of
International Trade?
25.Distinguish
between
'desk
research
and
field
research'.
26.Briefly describe the recent experience of Non tariff
barriers.
27.What
are
the
different
available to MNC to
market
entry
strategies
marketing.
importer ?
30.What
?Briefly
do
you
outline
understand
how
by
it
Medical
helps
Transcription
india
in
service
exports.
31.What are the major export items of India ? Who are the
major